IRA Trustee Must Know Answers to These 15 Questions

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

In most cases, an IRA owner who names a trust as the beneficiary of their IRA names either the spouse or a child as the trustee of the trust. This may not be the best option, especially if they cannot answer the 15 questions below.

1. Does the trustee know how to set up and title an inherited IRA left to a trust? The assets must be transferred as a trustee-to-trustee transfer. The decedent’s name must remain on the account, but the inherited IRA will be under the federal tax ID number of the trust.
    
2. Does the trustee know how and when to get a trust tax ID number?
    
3. Does the trustee know what to do if the trust includes property other than an IRA?
    
4. Does the trustee know what to do when the trust includes bequests made to others who are not to receive IRA funds?
    
5. Does the trustee know about the September 30 beneficiary designation date? The period from the date of IRA owner’s death to September 30 of the year following the year of the IRA owner’s death is known as the post-death GAP or shake-out period.
    
6. Does the trustee know to check if any beneficiaries should be removed during the shake-out period? This can be done either by cashing out or by disclaiming.
    
7. Is the trustee aware of the disclaimer deadlines? These will occur before the shake-out period ends.
    
8. Does the trustee know to pay-off debts and expenses during shake-out period (if the trust or state law provides for this)? Trust debts and expenses vs. estate debts and expenses: Does the trustee know the difference?
    
9. October 31 of the year following the year of the IRA owner’s death is the deadline for the trustee of an IRA trust beneficiary to provide trust documentation (or a copy of the trust) to the IRA custodian. This is the responsibility of the trustee. Does the trustee know this?
    
10. Does the trustee know that the IRA owner’s year of death required minimum distribution (RMD), if applicable, is a required distribution to the trust and must be taken by the trust?
     
11. Does the trustee know what the pay-out term for the IRA left to the trust is? The trustee would have to know which beneficiaries are to be considered in determining the post-death distribution period for RMDs. Does the trustee know this?
     
12. Does the trustee know about the trust terms and when and how much is to be paid out from the trust to the trust beneficiaries? Are required minimum distributions from IRAs left to the trust to be accumulated or passed through to the trust beneficiaries?
     
13. Is the trustee familiar with state trust law? Does the trustee know how to pay out income to trust beneficiaries when the Uniform Principal and Income Act applies (which is common, unless the trust drafter knows how to make sure these provisions do not apply to the trust)?
     
14. Does the trustee know what tax reporting must be done by the trust (i. e., trust tax returns and K1 statements)?
     
15. Does the trustee know about the Income in Respect of a Decedent (IRD) tax deduction (only applies if federal estate tax is paid on the estate of the deceased IRA owner)?